Need more money in your SDIRA, Solo401K Trust or IRA LLC to buy real estate?
Non-recourse loans for your Solo 401K Trust, SDIRA or IRA LLC are a great way to add leverage. Especially to that real estate purchase held within your Solo 401K-funded LLC, or SDIRA funded LLC. You don’t have to pay all cash for that rental/investment property. You can put 40% down, and finance 60% of the purchase price with a long-term fully amortizing 25-year non-recourse real estate loan.
Your Trust or LLC is the borrower. So you don’t provide personal financial or income information since you as the person are not borrowing the money. Your Trust or Pension Plan is. All loan payments flow from the Trust, just as all rental income generated by the property flows into your Trust or Trust funded LLC.
The 401K is the owner/borrower and qualifying for the loan is based upon the positive cash flow the rental property will generate. The idea that there must be a cushion of liquidity left in the Plan after closing for unexpected repairs, lack of rental income, or other unforeseen expenses. 15% of the loan amount is the typical minimum reserve required.
So recap, positive cash flow after all expenses is what pays the loan back. Therefore, 15% of the loan amount kept in reserves in the IRA is necessary for contingencies. Next time you are considering purchasing an investment property with your retirement trust, think about the power of leverage and using a non-recourse loan. You can increase your rate of return and add purchasing power to the funds you already have.